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ATPM 9.07
July 2003


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by Matt Coates,

Clone Wars

“Apple’s Music Store Shocks the Industry.” That was the headline on a dispatch from the Associated Press back in early May, shortly after Apple announced it had moved a million songs in its first week of selling music online. Two months later, Apple’s iTunes Music Store has sold more than five million tracks, and many of them are playing on the more than one million iPods snapped up by both Apple and Windows users.

The only people who don’t seem surprised by these developments are Mac users; we’ve been watching Apple build its music store for the past few years, even if we didn’t always know it at the time.

iTunes. iPod. FireWire. When the iTunes Music Store opened its virtual doors, all the parts came together. And even though most computer users (among them many Mac users) couldn’t shop there, the store was an instant hit, far surpassing the expectations of music industry executives who reportedly would have been happy if Apple had sold a million songs in the first month, much less the first week.


Apple didn’t invent the online music business; it just proved it can work. And that has the music industry’s attention. Having seen Mac users move a lot of product even as their own online sales efforts tanked, music execs are salivating at the prospect of Apple-magnitude sales in the PC universe. And they’re not the only ones—the iTunes Music Store’s success has triggered a stampede of companies into online music sales, each one convinced they can do better than Apple.

They can’t, and here’s why:

  • iTunes. A brilliant combination of music player, CD burner, and retail Web site, there’s nothing even remotely like it. And there’s no reason a Windows version can’t be just as good.
  • The iPod. Already enormously popular among Windows users and widely considered the best and most stylish portable player. Seamless integration with iTunes makes it even more compelling.
  • The iTunes music store. Streamlined, straightforward, easy to use, and ad-free.

As the online sales wars begin, the music biz would be smart to give Apple every advantage by opening their vaults wide because the company has proved it knows more about selling music online than anyone else does. No official numbers have been released by Pressplay, Rhapsody, and the other first generation companies, but no one believes their sales were anything close to Apple’s.

Common Sense Isn’t So Common

The brilliance of Apple’s plan is that it wasn’t brilliant. It was just common sense uncommonly well executed, pretty much what most of us would try to do if we opened an online music store. And it’s exactly what the music industry and their pre-Apple partners didn’t do. Apple catered to the people who matter when it comes to selling music online: the artists and the customers. The music industry listened to bean counters and pushed subscription-based music. Never mind that the subscription model has nothing to do with any way we’ve ever bought music. The industry saw it as new revenue stream.

The public did, too, and stayed away.

The sellers of subscription-based music should not require the wisdom of consultants, focus groups, and overpaid executives to understand why. They need to go look on the doorstep: you subscribe to a newspaper and each morning a paper arrives. That’s the entire transaction, and it’s what we think a subscription should be. The newspaper doesn’t charge you for a subscription and then charge you again when you read the paper.

And don’t you think that the music biz would have looked around at other media industries which sell by subscription and realized that consumers view many of them as intractable pickpockets? That’s not the image the already-suspect music industry should engender.

But the kicker is the twist the music biz gave to its subscriptions: music that vanishes if you don’t keep up with the payments. If you don’t pay your newspaper bill, they stop delivering but they don’t come around to pick up your old papers. If you cancel cable, you aren’t required to forget everything you’ve seen. But unless you transfer downloaded subscription music to a CD, it’s gone when your subscription ends.

It’s like car payments that never end. And what happens if the service you subscribe to goes out of business, something we’ll probably see several times in the next few years?

Yet as their subscription services flopped, the music industry scratched its collective fat head and wondered why. The record companies and RIAA, their trade association, blamed Kaaza and LimeWire and the other “file sharing” services for teaching people to steal music, but couldn’t (and still can’t) see that their own services were not a compelling alternative to free music. After a century of selling—not renting—records, the music industry suddenly has trouble understanding that people want to own the music they buy, no strings attached.

Napster Reloaded

April 28, 2003. Apple debuts an entirely new concept for selling music (the operative word is “selling”), and moves five million tracks in two months. The feeding frenzy begins.

Roxio buys Pressplay and revives the Napster name. RealNetworks acquires and retools Rhapsody. Amazon, Yahoo, AOL, and Microsoft’s MSN shift plans into high gear. And Best Buy, Borders, Tower Records, and several other retail chains create Echo, another iTunes clone. And with the enemy in disarray, Apple’s invasion of PC Land quietly gets underway as hundreds of thousands of iPod shock troops slip behind enemy lines to wait for D-Day: The arrival of iTunes for Windows.

Apparently, the key strategy of the iTunes wannabees is to declare victory over Apple and then come up with a real plan. They’re whistling past the graveyard, nervously hoping they won’t become its permanent resident.

A sampling of comments:

A spokesman for quoted by Bloomberg News: “We’re happy that Steve Jobs is bringing attention to online music, but he’s selling to what, 2 percent of the market? We’ll settle for the other 98 percent.”

Zack Zalon, general manager of Radio Free Virgin, Virgin Entertainment’s online music service, talking to CNET about Apple: “They’re an excellent software company, not a music retailer.”

Roxio CEO Chris Gorog, who told CBS Marketwatch (apparently with a straight face) that iTunes Music Store is not competition for his Napster revival because Apple only has a small market share. Please note that Napster Reloaded doesn’t exist yet. And once Apple launches iTunes for Windows (likely before Napster’s return)? “We have a monster competitive advantage with the biggest brand in the online music business, and it’s recognized as a music brand and not a computer brand.”

Big talkers now. But not one of these companies had the spine to jump first.

(Would you want to be the Roxio exec who has to negotiate deals with the record companies? Roxio software has burned millions of tracks of purloined music onto CDs and the company plans to hustle music online under the most famous brand name in music piracy—“Say, have you guys met our new consultant, Shawn?” And we thought “Rip. Mix. Burn.” might be a problem.)

Lessons Still Not Learned

Apple’s competitors plan to sell downloadable music tracks, and some services will let you move the songs to a portable player, but they haven’t given up on renting music and neither have some in the music business:

“Subscription services are ahead of their time…ultimately, there will be a huge audience for this,” a senior record label executive told CNET recently. But the news service also spoke with another unnamed industry exec who doubted the subscription model would become “a significant part of the music industry.”

Microsoft reportedly is hard at work trying to cram its current PC-based digital rights management technology into portable players, so you’ll be able to be cut off from your music on the road as well as at home.

And then there’s Rob Glaser of RealNetworks, a CEO with the arrogance of Steve Jobs but none of the charm. “One of our challenges is teaching consumers about digital music,” Glaser told Wired magazine’s Scott Menchin. Translation: to teach them not to gag as we ram subscription music down their throats.

Glaser told Wired that Rhapsody will be “an all-you-can-eat service” offering streaming music and CD burning of downloadable tracks.

Guys Like Steve and Me

Glaser chides Apple for passing up streaming, but least he has the decency to thank the company for kick-starting online music: “It’s hard to design a better scenario for us than what Apple did,” Glaser told Menchin. “It’s great having Steve Jobs get the word out, since we have the best service for the 95 percent of people who don’t use a Mac.”

In another interview, the RealNetworks CEO told Fortune magazine that Rhapsody’s streaming music will be a better deal for the little guy who can rent a 200-song streaming library for $9.95 a month. “If you use Apple,” Glaser said, “it’s $200.”

“Maybe guys like Steve and me can afford that,” Glaser told Fortune, “but I’m trying to run a service for everyone else, too.”

Glaser is a fatuous twit, but at least he has an actual business. Echo CEO Dan Hart, who does not, also sends thanks to Jobs: “If he’s the one who gets the game going—great,” Hart told May Wong of the Associated Press. Echo plans to sell music online and in the brick and mortar stores of its retail music partners but it does not have technology and licensing deals yet. “But the time is right,” Hart says.

Say, did I mention my plans for a cross-country road trip? I’m leaving just as soon as I find a map and put some wheels on the car.

• • •

Surfin’ Safari

Microsoft has pulled the plug on Internet Explorer for the Mac, and I can’t say I’ll miss it. IE was a solid browser in its day, but it was also a certified weapon of the Microsoft monopoly, the cudgel that beat the daylights out of Netscape.

Some Mac users are concerned that the Mac version of Microsoft Office could be next, but Microsoft Mac product manager Jessica Sommer says otherwise. She told MacCentral that “Office is still intact and going strong (and) there are no plans to stop development on Office for Mac even after the next version is released.” That makes sense, although the phrase “even after” is a bit worrisome. Office for the Mac makes money, Internet Explorer does not. And while the current political climate is favorable to Microsoft, it may not always be; Office for the Mac is a good hedge against further monopoly allegations.

Still, a demise of Office would have serious consequences in the effort to court Windows switchers unless Apple comes up with a workable alternative to Word, such as a revamped Office-compatible AppleWorks. But Apple also has an option which could head-off any problems with Office and make the Mac more appealing to both Mac users and potential Windows switchers. It’s something Apple should have done years ago: bundle Office with every new Mac.

But back to Internet Explorer. There’s more to the Microsoft decision than the Mac. It wasn’t commented on much in Mac circles, but a couple of weeks before the company officially acknowledged the end of development of the Mac version of IE (actual development appears to have ended a couple of years ago), Microsoft announced the demise of its free-standing Windows version of IE. From now on, new versions of Explorer will be available only as part of the Windows OS.

You could see that coming. Although a ruling that Microsoft used its legal monopoly in operating systems to undermine Netscape was left hanging when the Justice Department and the company settled the antitrust case out of court, the question wasn’t whether Microsoft destroyed its rival, just whether it did so legally. It’s easy to forget that Netscape was a very successful commercial product until Microsoft turned browsers into freebies and wound up with an estimated 95 percent of the browser market by giving away Internet Explorer. Netscape didn’t defend its turf very well, to be sure, but it’s hard to compete with free.

One of the highlights of the antitrust trial was Microsoft’s awesomely bungled defense of its claim that Internet Explorer was not a free-standing application but an integrated part of Windows that could not be removed. Continuing to offer a free-standing PC version would be tantamount to admitting the government was right in asserting that the bundling of IE with the Windows OS was part of the assault on Netscape and not a technical necessity.

But of course Microsoft didn’t put it that way. Instead, Microsoft’s Sommer slyly drew a parallel between Apple’s development of the Safari browser and Microsoft’s antitrust trial claim that IE, and by extension all browsers, is properly part of the OS. She said Microsoft can’t compete with Safari because Apple has superior access to the Mac operating system, the implication being that Apple would never grant Microsoft the access it needs to keep IE in the game.

The irony could not be lost on the Windows developers who have complained for years that Microsoft stifles competition by limiting access to its OS, guaranteeing that Microsoft programs work better in Windows than anyone else’s do.

• • •

This Season’s Inkwell

I’m still contemplating the big picture when it comes to the new Mac G5s and the upgrade of OS X to Panther, but I’m ready to nominate a candidate to join Inkwell in Apple’s technology-waiting-for-something-to-do queue.

There may be as many at two or three actual users of Inkwell, the OS X handwriting-to-text technology derived from the dear departed Newton. But Inkwell is not in the OS for no reason. Apple has plans for it (or maybe had plans for it) we just don’t know yet what they are (or were). My guess? A removable iMac or PowerBook screen that becomes a tablet Mac. But I think, like Newt, it got Steved. At least for now.

Anyway, this season’s candidates for mystery technology are the optical digital audio jacks on the G5s. The technology itself isn’t a mystery; it’s common on MiniDisc and DAT recording decks and, increasingly, on other audio system components such as receivers. But are the jacks on the G5 just for our general convenience or is Apple planning to sell us something to plug into them?

Also in This Series

Reader Comments (4)

anonymous · July 2, 2003 - 14:00 EST #1
Great observations. I enjoyed them.
Daniel A. Shockley · July 17, 2003 - 09:05 EST #2
Great article! Enjoyable, interesting, and well-written. I bought a couple tracks from iTMS while reading this. :-)
Eric D.V.H. · July 31, 2003 - 07:31 EST #3
Maybe someone could make a service that offered both streaming and downloading. Plus an extra treat--

I'm thinking, like, $15/month for the service and 80¢/track. In addition to this, you'd be able to get an audio CD, audio DVD, or super audio CD with any tracks you've already purchased, burned for 20% above media cost plus shipping & handling.

This means that your subscription would allow you to stream anything you want and a purchase would allow you to stream, download, burn, and order a good-sounding copy.

Why that last option? Well, I'm a Netflix customer and I think that paying a flat subscription for this sort of thing is great. A similar service (higher-priced of course) for video would be neato when higher bandwidth comes into vogue.

What would make the purchase-to-hardcopy thing even better is if you could walk into properly equipped stores with a DVD/CD-R/RW/RAM disc or any UFS/HFS/NFS/FAT32-formatted FireWire/USB drive, verify your account #, and have them burn/upload any songs you own onto said media/device.

A broadband connection would make quick work of the 0.6GB-18GB contents of modern hardcopy formats.

Also, while I may just be a homebody, I don't tend to listen to music while traveling and don't own any portable playback devices, so I'm kind of biased towards streaming access to a mega-huge library online from my machine.
Matt Coates (ATPM Staff) · August 1, 2003 - 11:20 EST #4
Eric --

The idea of while-you-wait, custom-burned discs was kicked around for years, but that was in the era in which home computers were not able to download music and burn CDs. With most new Macs and PCs able to do these things, I suspect that there isn't enough of a market (among people who don't care to "burn their own") to make it a viable business.

As for streaming, I think there is a future in it, but it won't really take off until more people have broadband. And I think you're right about the Netflix model -- the only way streaming will go big time is if it follows a flat-fee plan. Consumers of downloaded/streaming music seem to fall into two basic types you might call "iPods" and "Radios." iPods enjoy the process of downloading, burning, and loading to players--it's as much fun as listening. (This is one reason Apple's Music Store is popular--it's fun to use.)

But Radio people don't want to fool with that stuff. They just want the music. If a pricing scheme is confusing or the mechanics of getting to streaming music are poorly designed, Radios just won't fool with it. That's why a flat rate and an easy-to-use web-based playlist makes sense. Of course, the music business doesn't like that model. They believe in per-listen pricing, even though there is no historical basis for it. This is music, not pay-per-view Cable.

I suspect, although so far Steve Jobs indicates otherwise, that some sort of streaming music service will be offered by Apple down the road, especially as Wi-Fi becomes ubiquitous.

Thanks for your comments.

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